BMO invests big in cannabis, shows growth in American banking sector
The Bank of Montreal (NYSE:BMO) is hitting 2019 hard, at least when it comes to the cannabis industry. BOM invested in three marijuana companies in the past three weeks, injecting over CA$100 million ($74.61 million) into an industry that is still dancing with legality in most parts of North America.
The first investment of CA$10 million ($7.46 million) went to Emerald Health Therapeutics (TSX:EMH) (OTC:EMHTF) and the company’s Pure Sunfarms subsidiary. The credit facility is a fifty-fifty investment between BOM and Farm Credit Canada to finish converting Pure Sunfarms’ greenhouse for cannabis cultivation.
The second investment of CA$65 million ($48.50 million) went to HEXO Corp (TSX:HEXO) (NYSE:HEXO) in a syndicated credit facility between BOM and the Canadian Imperial Bank of Commerce. Again, this loan will fund the expansion of HEXO’s cultivation facilities in Quebec and Ontario, but there is also an option to bump the loan up to $135 million as long as certain legal and business conditions are met.
Finally, just last week, BOM invested CA$30 million ($22.38 million) in Sundial Growers, financing the pot stock’s European expansion plans. Sundial, which offers a unique Heal-Help-Play approach to medical cannabis, is just the latest stock in the industry’s growing focus on European markets.
Bank of Montreal is not the only cannabis player eying the new market potential either. More Canadian banks are expanding their focus across the pond, including Canaccord Genuity who appointed a new Head of Advisory European banking. But BOM’s focus is not primarily on Europe. They are looking to their southern neighbor as well.
Bank of Montreal’s bright outlook on America
BOM boasted strong growth in their American banking performance during last week’s earnings call with investors. Revenue from US commercial and personal banking was up eight percent over last year, boosting the bank’s US earnings by over forty percent from last year. They invested heavily in their digital platforms last year, including a mobile app, to which they attribute much of their current growth.
Can the bank carry their billion dollar momentum through to next quarter? The potential is there, and so is the timing. This positive growth stateside comes just as Congress is seriously considering giving US cannabis companies access to commercial banking. As BMO becomes a major player within Canadian cannabis, their experience could give them a head start should cannabis banking become a reality in America over the coming year.
Currently, BMO operates 560 branches in the US, including commercial services in California, Oregon, and Washington state. In an interview with American Banker, BMO CEO Darryl White said that a third of their bank could potentially come from US earnings.
“We have an addressable market in which we are established...that is already way bigger than Canada as far as GDP potential,” White said in September, long before the Marijuana Justice Bill was reintroduced to Congress. If commercial cannabis banking in America is added to their portfolio, that addressable market could expand exponentially.
The commercial banking services offered in legalized states like California and Oregon also includes capital markets offices. This could set the stage for potential long-term investments on top of the commercial services of which American cannabis companies are desperately in need. And where American banks may lack the experience and wherewithal to assist the cannabis industry, BOM could and most likely will step up to fill in the blanks.
Of course, none of this will be possible if Congress fails to pass the marijuana bill that was reintroduced on February 28. Investors could play the waiting game. The market is seeing a positive trend in BOM’s favor, which could continue as long as hope lingers for a federal change. The bank’s stock closed yesterday at $76, so investors should keep an eye on BOM if they are looking for a cannabis-friendly bank to add to their portfolio.